Have You Received Cryptocurrency Letter 6173, Letter 6174 or Letter 6174-A from the IRS?

On July 26, 2019, the Internal Revenue Service (IRS) announced that it was sending “educational letters” to U.S. taxpayers who were potentially behind on their federal taxes as a result of underreporting or underpaying their cryptocurrency-related liability. On August 14, 2020, the IRS did it again.

While the IRS may classify these letters as “educational,” U.S. taxpayers who receive these letters could be at risk for substantial liability. The IRS has made clear that it intends to aggressively enforce U.S. taxpayers’ obligations with respect to income derived from mining and cryptocurrency transactions (although it has acknowledged that its guidance on the subject has been less clear), and combatting cryptocurrency tax fraud is currently an agencywide priority.

What Do You Need to Do if You Have Received Letter 6173, Letter 6174 or Letter 6174-A from the IRS?

If you have received Letter 6173, Letter 6174 or Letter 6174-A from the IRS, this does not necessarily mean that you have underreported or underpaid your federal income tax liability with respect to your cryptocurrency holdings or transactions. But, it does mean that you need to work with a New Jersey IRS lawyer to determine what (if anything) you need to submit to the IRS.

While Letter 6174 and Letter 6174-A do not require a direct response, you must still determine if you have underreported or underpaid what you owe. If the IRS sent you Letter 6173, then you must respond (or request an extension) by the date specified in the letter.

The IRS chooses between Letter 6173, Letter 6174 and Letter 6174-A based on what information it has about the subject taxpayer’s suspected underreporting or underpayment. To reflect this, each letter begins with a different introduction:

• Letter 6173 – “We have information that you have or had one or more accounts containing virtual currency and may not have met your U.S. tax filing and reporting requirements for transactions involving virtual currency . . . .”
• Letter 6174 – “We have information that you have or had one or more accounts containing virtual currency but may not know the requirements for reporting transactions involving virtual currency . . . .”
• Letter 6174-A – “We have information that you have or had one or more accounts containing virtual currency but may not have properly reported your transactions involving virtual currency . . . .”

Otherwise, Letter 6174 and Letter 6174-A are substantially identical, while Letter 6173 goes on to explain what the taxpayer must do in order to submit a timely and compliant response. However, regardless of which form of letter you received, you need to make sure your income tax filings are compliant, as you have now been effectively put “on notice” by the IRS.

Speak with New Jersey IRS Lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group

If you have received one of these letters from the IRS or otherwise questions about the federal or state income tax implications associated with cryptocurrency, we encourage you to get in touch. To request a confidential consultation with New Jersey IRS lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, call 201-355-8202, email ket@thornlawgroup.com or request an appointment online now.